The Federal Reserve Cuts Its Staff

The disclosure by the Federal Reserve that it plans to slash its workforce by 10 percent in coming years strikes us as newsworthy. The central bank is characterizing the staff cuts as part of its effort to be a “responsible steward of public resources.” Then again also, too, it has yet to announce a plan to correct the collapse in the value of the most important public resource for which it is responsible — the United States currency that it issues.The value of that public resource has plunged in recent seasons. A $1 Federal Reserve Note fetches today less than a 3,200th of an ounce of gold, the classical measure of monetary value. We understand that the dollar hasn’t — yet — plunged in respect of competing fiat currencies. Competing fiat currencies, though, aren’t what one would call a true measure of the dollar’s value. Yet how many economists will the coming staff cuts clear out of the Federal Reserve?Not enough, these columns would hazard to predict. The Fed chairman, Jerome Powell, frames the downsizing as a modest affair, with the reductions largely coming via attrition. Mr. Powell directed Fed leaders to “find incremental ways to consolidate functions where appropriate,” the Financial Times reports. That hardly sounds like the shakeup that is warranted for the central bank that has failed to preserve the value of the nation’s currency.Nor does it address the concerns leveled by Elon Musk that the Fed is “absurdly overstaffed” and that taxpayer dollars are being misused on a lavish $2.5 billion renovation project at Fed headquarters. Is the downsizing an effort to pre-empt such criticism? “It is healthy for any organization to periodically take a fresh look at its staffing and resources,” Mr. Powell says. With the Fed reviewing its “policy framework,” will its handling of monetary issues get a similar look?The need for such a review is underscored by remarks the other day by one of Mr. Powell’s colleagues on the Fed’s board of directors, Christopher Waller. His speech chronicled the Fed’s devolution away from a central bank designed to uphold the convertibility of the dollar under the Gold Standard Act of 1900. The Fed now manages the fiat money regime derided by monetary sage James Grant as the “Ph.D. standard.”“Before the 1990s, very few policymakers were Ph.D. economists,” at the Fed, Mr. Waller explains, “and those who were usually did not have academic records in research.” He notes that “instead, policymakers typically had backgrounds in financial markets or the law.” Since then, Mr. Waller relates, “key policymaking roles in central banks around the world have been filled by Ph.D. economists with an academic research background.”Of the 19 policy makers on the Fed’s Open Market Committee, Mr. Waller reports, 10 are economics Ph.D.s, and the “experience of these economists further embeds economic research into monetary policymaking and strengthens the decisions that are made.” It was lucky, Mr. Waller adds, that one such Ph.D., Ben Bernanke, was the Fed chairman during the 2008 financial crisis, “to help fashion new monetary policy tools to combat the downturn.”Yet Mr. Bernanke’s innovation, Quantitative Easing, was an untried attempt to stimulate growth by expanding the Fed’s balance sheet. Waving away concerns that this could risk inflation, Mr. Bernanke averred that “we could raise interest rates in 15 minutes, if we have to.” Yet when a wave of price increases arrived during President Biden’s term, the Fed and its team of Ph.D.s first called it transitory, and they have yet to bring inflation back to the bank’s target of 2 percent.Nor has the Fed been able to get its balance sheet back down to less than $1 trillion, its level for decades prior to Mr. Bernanke’s monetary experiments. It’s no wonder that Mr. Grant has suggested that the Fed would be wise to “abandon the Ph.D. standard, which brought the era of government bailouts and too big to fail,” and get back to the era of gold convertibility. That would have the advantage, too, of requiring fewer staff on hand at the Fed.

The Federal Reserve Cuts Its Staff

The Federal Reserve Cuts Its Staff

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